What a good time for this post! Geo-political events (Mostly in Iran) have led crude oil to once again hit triple digit values. Why? Market INSANITY!
True, there is a lot of things to consider, and yes, supplies have been compromised. Other problems in the middle-east could also snowball into an evil rats-nest of doom. But has it happened yet? No. Did Saudi Arabia start pumping more oil to make up the shortfall? Yes. Did the price of oil return to it's previous level? No. Is the saudi king old? YES! (He's 87) Did he just bribe his government to keep things going just the way they are? YES! (To the tune of MANY billion dollars)
So there's no supply shortfall, there is no refining shortfall, there is no distribution shortfall. But prices are still higher than they were just 2 weeks ago. (15% higher!)
My OPINION: (You can't sue me for this)
Things are going to correct once everything settles down. It may take a few weeks, it make take a month or three, or it may take a completely unrelated geo-political disaster somewhere else in the world to take the fear-mongering media's attention away from this crazy situation.
This means you should consider a SHORT position on oil. I have a small short position which I just bought today (just before market close). To limit my risk I'm not going to hold it for any length of time. With luck I'll be able to sell it tomorrow. (Yes yes, I hear you shaking your heads: what kind of crazy day-trading is this fool doing?) I'm sure I could hold it longer and wait for a proper correction, but I'm happy to take my profits even $5 at a time! (Yes the hourly rate looks craptackular, but profit is profit no matter how thin your slice!) My smallest trade for profit to date has been $0.15. Yes. 15 cents. ONE FIVE CENTS! It was one of my first attempts at day trading because I wanted to see if I could actually do it.
Yes folks, lots of people out there make lots of money day trading. I really don't recommend doing it though. Most of my strategy is long-term oriented. Which is generally why I don't recommend short positions. It's much easier to identify a company that will be around for a while. (Say Bell Canada, or Suncor... something big, something that thousands or millions of customers pay for day in, day out.)
I have been up to this week been too chicken to sell anything short. But when OIL (WTI) Hit $103 per barrel that looked just too tempting. Even if it fell back down to $98 (which it did the next day) I could make some fast profit. And I did! I earned a 4% profit by the next morning. (Which I SOLD and put the money back in my pocket)
Previous valuation for oil before Iran exploded was in the $85 to $95 range. I'm not holding my breath to wait for $85. Take your profits as soon as you can if you want to try short selling anything.
So now I've told you how I've been embracing volatility, this is why you should do it: Oil move a percent or three almost every day. You just have to make sure your on the right side of the move. If you go long and things don't go your way you only need to wait until you're back in the money. Seriously folks, does the price of gasoline go down much? (During big recessions yes... but not most of the time) There are 10+ year stretches of history where gas prices only went up and up and up and up. Geo-political triggers will give you sudden spikes. Then you need to go short a bit as the dust settles. Watch out though, as it will never return to the old range. It will find a new higher range and stay in that range for a very long time.
Details: The two products I use to trade oil are both Horizon Beta Pro ETFs. They trade on the TSX. (HOU and HOD) They are even hedged to cover the US dollar exposure (since oil is traded internationally in USD) and to complicate things they are leveraged to give even more swing. So if Oil goes up 1% today HOU goes up 2% and HOD goes DOWN 2%. However the leveraging and hedging (and contango) complicate things so these two products always trend down faster than they go up. So they are NOT great for long term holds. (HOD only goes up when oil goes down. Will OIL ever go down long term? NO! So don't hold HOD long term! Don't hold HOU long term either!) I was stuck out of the money for a while this past year. I didn't get out in time during the summer doldrums. But eventually it came back to profitability and I'm back trading these funds a few times a week.
Disclaimer: I'm not a "certified" investment adviser. My opinions are exactly that. I'm using them to help eek out a slightly better living than I could have afforded to if I had just put my money in the mattress. I've made some money at this, but I've also lost some money at this. (More gains than losses thankfully) There is risk here people. You can't blame me if you lose everything. If you follow my advise and lose everything then I'll have lost everything too! If you sue me then it won't get you much since I'll be broke too. If your clever lawyer things he can squeeze blood out of a stone good luck!